Manufacturers file challenge in court resulting in compromise between state government and pharmaceutical companies.
On June 17, 2017, Nevada enacted its Transparency Bill (S.B. 539) to address rising drug prices, especially those of medications used to treat diabetes.
The legislation directs that the Nevada Department of Health and Human Services (NDHHS) must compile 2 lists:1 with the wholesale acquisition costs (WACs) of each drug that it determines essential for treating diabetes and the other of drugs whose WAC has increased at least as much as the Consumer Price Index for Medical Care during the calendar year or doubly as much during the previous 2 years. Manufacturers whose drugs are on the former list must report production cost, marketing/advertising costs, profit percentage attributable to the drug, patient assistance program expenditures, the drug’s current WAC, a history of WAC increases over the previous 5 years, and the aggregate amount of all pharmacy benefits manager (PBM) rebates for sales of the drug in Nevada to the NDHHS.
Manufacturers whose drugs are on the latter must list and explain each factor contributing to the increase in cost. Outside of the regulations pertaining to manufacturers, PBMs and sales representatives must submit annual reports to the NDHHS with information about compensation to health care providers and rebates to consumers. Finally, nonprofit organizations that assist patients or fund research in Nevada must report any payments that they receive and the total gross income attributable to those payments. Once all reports have been filed, the NDHHS must place its analysis reports on its website.1 The hope is that drug prices will cease to increase because of the public awareness created by this reporting.
However, some manufacturing companies think this new law is unconstitutional. On September 13, 2017, the Biotechnology Innovation Organization and Pharmaceutical Research and Manufacturers of America sued the head of the NDHHS and Nevada Governor Brian Sandoval, claiming that the law violated patent rights and trade secret protection. They argued that the bill would halt future innovation and hurt patients, because it would dissuade investors from personally financing the expensive and risky research of drug development. To support their case, they contended that the new law interfered with federal patent and trade secret law and violated the Takings Clause of the Fifth Amendment and the Commerce Clause. They filed a request for a temporary restraining order and a preliminary injunction in hope of delay- ing the law, which was scheduled to go into effect on October 1, 2017.2
In the case that followed, some degree of compromise was reached between the drug manufacturing companies and the state government. In the final version that was adopted by the NDHHS on May 31, 2018, manufacturers and PBMs may request that the department withhold some information from public reporting if deemed a trade secret under federal law. Then, if the information is requested, the department must rule to either disclose the information if it is determined to not be a trade secret or deny the request in written form within 5 business days. Furthermore, procedures have been put in place to ensure that if a trade secret or confidential information may be disclosed under the Freedom of Information Act, the submitting companies have an opportunity to protect their information before it can be disclosed.
With regard to the Commerce Clause, Congress may prohibit Nevada from disclosing the information if it could have commercial value in interstate commerce. Of note, also included in the new law: NDHHS must include in its internet report a description of the trends that the drug prices are following, as well as how these patterns may affect the occurrence and severity of diabetes in Nevada and its overall health care system.3
Sarah N. Langford is a PharmD candidate at the University of Kentucky College of Pharmacy in Lexington.Joseph L. Fink III, JD, BSPharm, DSc (Hon), FAPhA, is a professor of pharmacy law and policy and the Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy.